The story of the financial collapse of 2008 is well rehearsed in our national consciousness: an over-priced housing market supported risky “sub-prime” mortgages made to middle- and upper-middle class folks who overreached, borrowing more than they should have, and those mortgages in turn were packaged and sold on Wall Street by big institutions that should have known better. As the housing market and the sub-prime mortgages collapsed on each other, the Wall Street investments on which they were based became worthless, and, seemingly overnight, billions of dollars vanished into thin air. The economy would never be the same.
That’s the story we all know. But there’s much more to it than that. The middle class was not known for the type of reckless borrowing that created the sub-prime mess. Investment banks had built decades of good-will on being reputable and stable. What turned the status quo on its proverbial head?
Gary Rivlin wrote Broke, USA to tell the story of the growth of what he terms “Poverty, Inc.,” the big businesses that target the working poor with services like check cashing, payday loans, and rent-to-own. But in the process, he reveals something much bigger: how the success of that industry gave rise to an insatiable greed in the financial sector, causing rational thinking to be cast aside even while the warning bells of the impending crisis were ringing loud and clear, yet unheeded.
Poverty, Inc. has honest roots. The working poor make just enough to get by most of the time, but when an unexpected expense pops up, they often are unprepared to handle it. With limited options, the ability to get a payday loan can be a real life-saver. That’s where the story begins: a few businessmen who provide a service to their neighbors. It doesn’t take long, however, for the check cashers and payday loan men to recognize that there’s a lot of money to be made here, mostly because people easily get trapped in revolving debt. Poverty, Inc., strikes it rich, earning huge sums by taking advantage of the working poor. But that’s still early in the story. Soon, corporate American begins to recognize the profits being made by these companies who cater to the lowest strata of our economic class system, and the little guys get bought up by well-known banks who have never even recognized the working poor as a market. The real danger, however, comes into play when those corporations begin to recognize that it isn’t just the poor who can be trapped in revolving debt; they take the lessons and products developed by Poverty, Inc., to the next level, and all hell breaks loose.
Broke, USA serves as both a primer and an expose. You’ll learn a fascinating history about the origins and growth of an industry. You’ll also find yourself dumbfounded at the sheer temerity with which the big players in the financial world conducted themselves leading up to the collapse of 2008. Rivlin has performed an invaluable service, illuminating important parts of a story that we, as a nation, think we know.
Beyond the contents of the book, Broke, USA raised some important questions for this reader: how do I, as a business person, see my clientele? Am I engaging them on the basis of the Golden Rule, or am I manipulating the relationship to squeeze everything I can out of it? On a grander scale, should corporations have moral requirements? Is there a point where doing the right thing should trump making the most money? While I work to stay true to a moral compass in my own dealings, we, as a society, need to be wrestling with the bigger questions. How we decide that debate will determine, in large part, how long we have before the next 2008 appears.
A review copy of this book was provided by Harper Collins. The opinions expressed are those of the reviewer alone.
Photo credit: waving at you, flickr.com
Ben Martin is the CEO of THE FATHER LIFE. He lives with his wife and five children in the Rochester, NY, area.